There are two different concepts at play here and confusion between the two is muddying the discussion. The first is the concept that distinguishes the honesty in a piece of communication: truth vs. a lie. The second is the concept that distinguishes the honesty of evaluation: truth vs. fantasy.
In the latter case, it's how we approach the world around us that matters most. Are we honest about reality and do we deal with what actually is, or do we evade the truth and live in a world of pretense? In this regard, honesty--even what I might call a radical commitment to honesty--is absolutely essential. If we want to better anyone's life, our own or another's, we have to deal with the world as it is; fantasy and dreams don't help. Which is not to say that we may always know the truth, or even that we know enough to know where to look for the truth, but that we embrace a radical commitment to discovering--as honestly as we can--what that truth is. It's a commitment to not let fantasy intrude on reality.
The social aspect of honesty--what lies and truths we tell each other depends heavily on how committed we are to the first, more fundamental principle of how we relate to the world. If we are committed to truth then we recognize the enormous value--and vulnerability--of our relationships and so we treat those relationships with care. And, just as important, we recognize that not all relationships are equal. We don't share our secret fears with the bagger at the Piggly Wiggly because the context of that relationship makes such intimacy inappropriate. We don't tell a child that her piano skills "suck," because in the context of development and education, relative progress in skill is more important than absolute talent.
It's a simple truth that context matters.
What you tell your child after piano lessons (or soccer practice, or while they struggle with homework) depends on the particular context: what do you want your child to take from this moment? What does your your child ~need~ to take from this moment? False praise? Encouraging words? Assurance that next time will be easier? A careful warning that next time might not be so easy? A gentle reminder to pay attention? Or maybe they need to sit their but in the chair, stop whining, and do the work already!
Maybe you're wife's sister is smokin' hot or maybe you're just a sleazebag. Maybe you're attraction to her is damaging your marriage and it really would be better if you said something. Or maybe you're just a sleazebag. Maybe you're not interested in your wife's pointless story. But is it a lie to pretend to care about the story, or a lie to give her the impression that you never care about her stories?
A commitment to honesty, real honesty, demands that we pay attention to the context around us. Honesty demands both that we deal as truthfully with our own motives as we do with the motives of others. It's easy to hide behind a lie. It's even easier when you believe the lie to be true, but that's a failing of the worst kind.

We reflexively instruct our children to always tell the truth. It's even encoded into Boy Scout Law. It's what adults do, isn't it? But do we? Isn't telling the truth too much and too often a bad life strategy – perhaps even dangerous? Is telling children to always tell the truth even itself th...